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11/16/12 Market Memo

Well, as I been mentioning in my videos, the market is in at least a corrective phase. Technically, inside day in $SPY failed to the downside as well as in $QQQ (technology). But now, financials which led the decline are printing inside days, so it's either a continuation of selling pattern, or a reversal to the upside pattern, won't know until it breaks, but I'd be careful adding risk to declines. Reason being is major indices and stocks printed inside months & down, meaning on a monthly basis (long-term) this breakdown could last a few months. I'd actually be looking to take advantage of any rallies to sell profits and start buying puts. There's always lower prices and next year to start a round of buying, but we had a great run to the upside, now it's time to give some back as markets go through corrections, and I'm not liking the technical setups, it favors downside risks. $SPY 140.40 is where the inside month broke to the downside so below that this market is a sell in my opinion. It was going to happen sometime, so best to lock in hard earned profit and reload at lower prices. So many people are trying to call bottoms and they will all get burned for being trigger happy. Just look at Apple $AAPL. Ford could drop lower and trade below the 10.42 gap from 10/26/12 which is yet to be filled. Fundamentally, obviously the financial markets didn't like the Obama victory and we shouldn't either. That means Obama will likely be more stubborn to compromise with House Republicans as deadlines of tax breaks approach, and he will continue to go after harder regulation on banks, that's not a risk positive. All this fiscal cliff talk is just another word for austerity, raise taxes and cut spending, in attempt to reach budget deficit goals. Either way the uncertainty slows down growth. The economic data and manufacturing data (Philly Fed, Empire State Index all reprint negative) and jobless claims data released today over 400K has shown that the re-acceleration or low-level economic stabilization is fading and loosing steam. Not to mention the Fed is continuing QE3 and that hasn't helped similar to QE2. So, that takes away policy action to speculate, at least from the US side of things. And in China, inflation has come down due to slowing growth, manufacturing is showing some signs of stabilization, but Chinese policymakers aren't acting with any stimulus yet, as they get complacent, so that's not good for risk either. And in Europe, industrial production numbers printed -2.5% latest data, and Euro-zone Q3 GDP printed negative again, confirming the beginnings of what could be a deeper recession. And the ECB still hasn't provided any clarity on their new rescue mechanisms purchasing short-term sovereign debt (OMT Program), it’s been several meetings with no clarity from Draghi outside they will do what it takes to save the Euro, so the market will be taking that as policy inaction which is not good for market risk, especially when economic data is beginning to decelerate again. There is a convergence going on with core & peripheral Euro-zone as lack of growth & a broken interbank lending system is effecting Europe and its trading partners in a globalized financial world. So back to that global policymaker inaction plus macroeconomic deceleration which translates to a derisking, thus lock in profits (as $SPX is positive YTD), so that means lower prices ahead. I don't believe in the hedge funds rallying the market because the $SPX is already up in the year so performance chase is met with those locking in profits, dividend selling, and tax selling purposes to end the year. So I would take advantage of any rallies below $SPY 140.40 to sell short or lock in yearly long gains. Why be greedy when the tide is beginning to turn? I know what market participants will be thinking when the market rallies, they will think the bottom is in, until we triangle to the downside again as I mention in my broadening formation videos. So I'm not bullish now, I've been bullish for most of the year, but any good trader knows that there's a time to buy and a time to sell and always respects both sides. I wouldn't underestimate this decline from a technical and fundamental reasons I’ve mentioned above.